Foreign locomotive majors run into input tax issues, seek refund

NEW DELHI: Global locomotive manufacturers such as GE, Alstom and Bombardier, which have invested billions of dollars under the Make in India programme of the railways, have lobbied the finance ministry over challenges they are facing under the goods and services tax (GST) regime.

The companies are confronted with input tax credit that’s piled up due to government restrictions on the railway sector under GST. Railway locomotives are liable for GST at 5%, but the rate on most inputs is 18% or even 28% in some cases, creating an inverted duty structure.

Normally, in the case of an inverted duty structure, refund of input GST is allowed subject to certain limits. In the case of the railways, refunds are specifically restricted.

They are hoping that a recent relaxation given to the fabric industry could be extended to them. The companies haven’t given an estimate of the amounts involved.

The companies can carry this excess input tax on their balance sheets but it won’t get liquidated.

Those that have other businesses can possibly offset this input tax but those engaged only in manufacture and sale of locomotives can’t do much.

The industry has petitioned the government seeking expeditious redressal citing the significant investments made in setting up manufacturing facilities in India. It is keen that the GST Council takes up the issue at its earliest, arguing this was making manufacturing in the country unviable.

The representation sent to the finance ministry said the situation will encourage imports rather than local manufacture. In the case of imports, only integrated GST (equal to GST levied domestically) will apply.

Jain said refund of the accumulated input tax credit under the GST regime should be allowed for domestic manufacturers. “Make in India initiative offers enticing opportunities to promote influx of business across various sectors and industries.

However, the same is deficient in nurturing the railways rolling stock industry,” said Amit Gupta, tax director (APAC region), Bombardier Transportation.

The restriction on refund of unutilised credit on account of the inverted duty structure has burdened the industry with increased costs and is acting as a barrier to Make in India.

“Alstom welcomes GST because it brings simplification with regard to tax complexities and helps ease of doing business. However, I observe a competitive disadvantage of 6 to 7% for our company where the average input rate is higher as compared to output rate at 5%, and current GST law denies refund of surplus input credit specifically and only for our industry,” said Simon Garnier, CFO, Alstom India.

“We hope the GST council will resolve our issue, as recently amended for the fabric industry.”

The GST Council had in July allowed input tax credit in the textiles sector, which had also faced such restrictions.